My wife is a massage therapist and her business is an S-Corp. She sold a bunch of gift certificates before Christmas that won't be redeamed until sometime this year. What is the best way to handle the sales in 2001 and the redemption is 2002? >>>>>

If her S-Corp is an accrual based entity, she should set up a liability account called Gift Certificates. When she sells the certificates she would debit cash and credit the Gift Certificates liability account. When a gift certificate is redeemed, she should debit the gift certificate liability account and credit fees (or whatever her revenue account is).

True under GAAP. However, under the Internal Revenue Code, Income is recognized on sale of Certificates.

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